What is the right of first refusal for municipalities?

The municipality can only exercise the right of first refusal for a property in certain cases if it lies within the scope of a preservation order.

In a ruling dated 09.11.2021 – 4 C 1.20, the Federal Administrative Court ruled that a municipality’s right of first refusal for a plot of land located within the scope of an urban development ordinance does not exist if the plot of land is built on and used in accordance with the purposes of the urban development measures and the buildings erected on it do not have any defects.

The municipality could not exercise the right of first refusal for such a land plot on the basis of the assumption that the buyer would in the future pursue utilization intentions contrary to preservation.

What were the facts underlying this decision and what is the specific situation in Munich?

The decision was based on the following facts:
The case concerns a property in the Berlin district of Friedrichshain-Kreuzberg, which is built on with an apartment building dating from 1889. There are 20 rental apartments and two commercial units in this building. The property is located within the scope of an ordinance intended to protect the preservation of the composition of the residential population for special urban development reasons.

The plaintiff, a real estate company, had filed a lawsuit against the exercise of the municipal right of first refusal. The district authority applied its right of first refusal under Section 24 (1) No. 4 of the German Building Code (BauGB) to prevent rents from being increased by upgrading the apartments and/or to prevent condominiums from being created from rental apartments. In this way, the district authority wanted to prevent part of the residential population from being displaced from the area.

In the previous instances at the Administrative Court of Berlin (13 K 724.17 – judgment of 17.05.2018) and the Higher Administrative Court of Berlin-Brandenburg (10 B 9.18 – judgment of 22.10.2019), the decision was still different.

Both rulings gave the district authority the right to exercise the right of first refusal. Otherwise, developments contrary to conservation would have to be feared. In the specific case, the composition of the residential population would be endangered.

What is the situation in Munich?

Lord Mayor Dieter Reiter and the managing director of the Munich Tenants’ Association Volker Rastätter see this ruling as a major threat to tenant protection in Munich.

If the verdict has an impact on Munich after legal examination of the written justification, the Lord Mayor will lobby the new federal government very hard for better tenant protection legislation. Tenant protection would be severely restricted by this ruling. Only if the property was a junk property could the right of first refusal still be exercised in the future.

Munich has 32 conservation statute areas with 192,000 apartments. Since 2010, the municipality has exercised its right of first refusal for properties in such areas 65 times.